Aaron’s stuff

Austin’s stuff

There are real differences between us

May 31, 2013 at 12:50 pm

Aaron Carroll

There are many times when it seems politically savvy to highlight the similarities between the positions we and those who disagree with us hold. But there are times when we do that too much. I’ve been thinking about that as I’ve watched the recent debate about “catastrophic” insurance and how “higher copays” are what’s bringing down health care spending.

Let there be no hedging here. The RAND HIE showed that if you make people pay more of their own money for care, they spend less. Overall health care spending can go down. This is known, and no one here disputes that. The subtlety is that it turned out that people in the study were somewhat lacking in their ability to discriminate between necessary and unnecessary care. Sick, poor people had a higher mortality.

If your main goal is to bring down health care spending, then go with high deductible plans. The tradeoff is that the health of the population may suffer. If your main goal is to improve the health of a population, then lower the deductible. The tradeoff is that spending will go up. These are two different goals, with different tradeoffs.

As I have said many, many times: I believe the main goal of the ACA was to improve access. It was to reduce the number of people in the United States who lacked health insurance. I think in defining access, it was also a progressive policy in that it stipulated that insurance should meet certain minimum standards. The tradeoff for this is that it cost money, about a trillion dollars over a decade.

Anyone who loves high deductible plans usually acknowledges that they are awesome for young, healthy people. They are. No one disputes that. By definition, young, healthy people don’t need care, so getting them to spend less is a pure benefit. The tradeoff is that it removes those people from the risk pool for other plans, which makes the insurance for sick or not-young people that much more expensive. If your goal is to maximize the freedom of young, healthy people, then you probably favor more HSAs and HDHCPs. But if your goal is minimize the cost for the entire risk pool, then you probably favor the ACA. In fact, you probably favor a single-payer system. But we compromise for political feasibility sometimes.

If your main goal is to protect young healthy people from insurance that costs more than it could, then that’s fine. But I don’t think that’s what most people who supported or wrote the ACA held as a main goal. Maybe they weren’t clear about that. Take that up with them. That’s a political discussion. But from a policy perspective, it’s been pretty clear what the ACA was supposed to do.

So I’ll state this for the record: I think that some young, healthy people are getting the shaft right now. Not all, because some can still get on their parents’ plans. Some can still still buy catastrophic insurance if they want. Some will get Medicaid. Some will get subsidies. But if you’re a young, healthy 28 year old male who makes 400% of the poverty line, and you currently have really cheap insurance, it’s likely your rates are going up.

OK? I freely admit that my goal in health care reform was not to protect the status quo for young, healthy males. That’s wasn’t my goal for reform.

They will have to pay a bit more. The tradeoff is that if they don’t stay healthy, they’ll still be able to get insurance for the same price. If they get sick, there will no longer be any lifetime or annual limits. When they get older, they’ll still be able to get a plan, and it won’t cost nearly as much as it otherwise would have.

I think these tradeoffs are acceptable. You may not; that’s why we live in a democracy. But this was the plan. The law has not been rewritten. This blog, and many others, have been consistent in what they say about it. There is no “gotcha” here. The fact that young, healthy people are seeing a rise in premiums (without subsidies) as they transition from cheap, bare bones insurance to more comprehensive insurance is not a surprise. It’s not new, horrifying data about the failure of Obamacare. It’s an expected, and known, tradeoff to get a better healthcare system overall.

You’re still free to disagree that the system will be better. I’m sure that debate will continue for some time. But let’s acknowledge that we do differ in what we want out of policy and be honest about what we value.

Totally agree on political feasibility. There’s a reason for the concept, if not the reality, of “if you like your plan you can keep it.” Americans have to believe that to accept anything. So, the more a reform deviates from it by explicit design, the less likely it’ll ever happen. (No, I’m not endorsing lying to Americans. At the same time, truth/falsehood is not as black/what as people like to think.)

” I think in defining access, it was also a progressive policy in that it stipulated that insurance should meet certain minimum standards.”

Perhaps you are already familiar with it, but there is a line of research literature on this, that basically says you can’t have community ratings without mandating at least a basic standard plan. The higher the deductible in the basic plan, the more inefficient the equilibrium becomes. Not a surprising result at all, really.

I’m not quite sure it’s accurate to say that older, less-healthy individuals/families don’t also potentially benefit from the general HSA/catastrophic-only model, IF those older, less-healthy individuals and families have access to out-of-pocket funds to pay for their care that is below the deductible. For lower-income persons, it’s pretty obvious that this could be a problem. But for a middle income or above person, having to shell out $500 for that trip to the ER, or put that $2,300 broken bone on the credit card may SUCK, but it’s probably doable.

And in doing so, they can avoid what I call the bureaucratic medical system, where you’re basically paying $1,000/month for a family policy so that when you incur a $100 bill a couple of times a year at your family doctor’s office it only costs you a $10 co-pay. About the only thing that $1,000/month premium gets you is a non-MD who never met you reviewing your medical treatment and deciding whether the insurer will cover treatment X instead of treatment Y.

Bottom line, I think you can have a health care market (and I do mean a market, with all the Adam Smith/Ayn Rand/Milton Friedman ‘baggage’ that term carries) that avoids the bureaucratic medical model while still have appropriate safety-net programs for the poor and the uninsured sick (insured sick almost by definition aren’t a significant problem – they need insurance to pay their bills, and they have insurance to pay their bills). ACA takes us emphatically in the wrong direction, but thankfully not as far as single-payer.

I have private insurance, so the out-of-pocket cost for me is policy cost + deductible. The $2,500 deductible plan didn’t offer much cost savings over the $1,000 deductible plan. I suspect because the $1,000 already prices out the small stuff and the $2,500 deductible doesn’t offer much protection against the really big bills.

Based on my experience, I’d assume that the policy price savings of going from a $1,000 deductible to a $5,000 or $10,000 aren’t great. So, the policy idea of very high deductibles results in poor pricing of insurance.

The price difference between lower and higher deductible insurance plans didn’t make up for the risk of having to really need them. I found that higher deductible/copay plans would be catastrophic to my finances if I needed significant care. In general, I might as well not have insurance at that point.

In Vermont, rates for plans to be sold on the exchange are relatively flat to what is available today. How did they do that? By doubling the out of pocket maximums that people pay. This is squarely shifting the burden to older people, and those who utilize healthcare. How does this help?

You ignored the obvious advice for the healthy 20-something male – Pay the $95 (and escalating) penalty. To provoke laughter, I would add “Save the difference from the premium in a rainy-day fund” but more realistically, “Buy lottery tickets”. Question: Will this kind of risk-taking lead 20-something males to reduce their risk-taking elsewhere with alcohol,drugs, speeding, fatty foods, sky-diving, smoking, and anything else that might land them in an E.R.?

This is exactly what I expect to happen in many states. Even with subsidies it is going to be far more expensive (assuming no medical catastrophe, which most 20-somethings will assume) to get insurance than be uninsured and pay the tax. A lot will depend on the state but it looks to me like somewhere between 200 and 250% of the poverty level, the difference will hit $1,000. Depending on age, once you hit 400% of poverty the differences can be pretty staggering, $15,000+ for some.

And I don’t suddenly expect 20-something males to somehow, suddenly become wise and prudent in terms of the risks they take.

My overall expectation is that, by the time the ACA is fully phased in (I’m calling that 2016), it will have probably knocked about a quarter to a third off of the number of uninsured in America. That’s not nothing, but when you look at the cost and consider what could have been done for a fraction of that by simply moving more towards a market-based instead of centrally-planned model, well, I have a real hard time calling that a success.

Of course, we could have gone the way of the Netherlands and Switzerland and the Netherlands adopted pure community rating (no discrimination based on age), but we chose to discriminate against the nearly old (who will pay premiums three times higher than younger insureds). Sure, the nearly old are more likely to get sick and need health care, but not nearly as likely as a twenty something who has cancer or has diabetes or has ALS or is obese or has renal disease or any other condition that insureds aren’t permitted to take into account in setting premiums. I’m nearly old, but I exercise regularly, I’m definitely not overweight, I don’t smoke, I don’t drink coca cola, I don’t eat at McDonald’s. Why are insurers allowed to charge me three times the premium as a twenty something who has cancer or has diabetes or has ALS or is obese or has renal disease or any other condition that insureds aren’t permitted to take into account in setting premiums? The answer: (near) universal health insurance would cost a whole lot more.

What is being left out of the analysis here is true “health care”, routine doctors’ visits and wellness support. With doctor’s appointments costing $300, specialists at $500 per visit, even your middle income persons are going to have a hard time with high deductible/catastrophic coverage. People with no insurance who pay the “tax” will not get routine medical care. Symptoms will be ignored until they become catastrophic, voila! now it costs more to treat. It is the current health care market that has created the bureaucratic medical model. What you are suggesting as an alternative works only within your narrowly constructed “market”. Leaving out the millions of scenarios in which people who make under, say, $80,000/yr would still have serious problems with their medical care.

People over estimate how much their healthy lifestyle reduces their healthcare costs. I’m not arguing for obesity and cigarette smoking, I’m saying that when you look at what costs money over a person’s lifetime, it’s the few people who have ALS or cancer or some chronic health conditions that are not lifestyle related that cost so much. We understand that with homeowners insurance, but not yet with health insurance.

Prudent people have smoke detectors, they trim tree limbs that overhang their roof, they check their roof and crawl space regularly. Their houses sell for 3% to 5% more than ‘standard’, they may get a small discount on insurance, but everyone understand that the average house costs about $200,000 to replace.

Most healthcare spending is on a few really expensive problems, in the last year or two of someone’s life. The good lifestyle means the last years of someone’s life comes at 85 rather than 65, but they still come, and they still cost money. Some studies say that smokers, for example, die earlier and cheaper than older people who live long enough to get cancer and hip replacements and dementia care.

What the point of insurance if your expensive medical condition gets priced into your policy? The point of insurance is to insure against the risk of expensive care.

The problem with health insurance is that conditions can be chronic, unlike, say, the risk of having your car stolen, but surely that’s an argument for why insurance is a bad way to fund needed health care.

“If your main goal is to bring down health care spending, then go with high deductible plans. The tradeoff is that the health of the population may suffer. If your main goal is to improve the health of a population, then lower the deductible.”

Where is the proof behind that statement? Moreover, if you lower the deductible that money comes from the taxpayer both rich and poor. Maybe the increased costs for that low deductible causes a family to delay replacing their tires. What happens if they get killed in an accident that could have been avoided if they had the money to buy new tires earlier? Tradeoffs. The tradeoff was that one could have a lower deductible and a family of four can lie dead on a highway. The tradeoff is not between a low and high deductible as you say rather what that money might have bought if it was not taken from the individual.

“The tradeoff is that it removes those people from the risk pool for other plans, which makes the insurance for sick or not-young people that much more expensive.”

To me it seems that all you are saying is that you want to pay for the system by unfairly taxing the young at a higher rate than a risk adjustment would expect.

With appropriate risk adjustments it doesn’t matter who is in or not in the pool. It has no affect on the pool’s financial stability.

“They will have to pay a bit more. The tradeoff is…”

Of course what we might see is that many of the young refuse to carry insurance and wait until they are ill depriving the pool of needed revenues while adding expenditures. That will raise the premiums for everyone and make everyone believe the entire system is unfair. Of course that would likely lead others to follow suit. To fix that problem we can ask government to become more violent and use force. Then we have insurance but have lost our liberty.

I’ve spent my career working with the poor and underserved, and my experience and education tell me that the best way to increase their access to care is through far more consumer choice, possibly via HSA/catastrophic system with subsidies, and massive destruction of the legal barriers to cheaper care (licensing, certificate-of-need, molecular entity and genomic patents, etc.). Aaron claims people like me value the wallets of young healthy males above all else.

The first sign that you may be participating in theater rather than debate is when you declare that all who think differently hold inferior moral views.

If I’ve/we’ve learned anything from these guys over the last few years, its that:

1) No healthcare delivery system is without problems…
2) For every “what if they can’t afford new tires for the car and they get killed” there’s thousands of instances where people suffer and yes ultimately die from a lack of access to affordable health care.

Its interesting to me and probably many other readers that you played the liberty card. What’s next off the deck? Tyranny? The ACA wasn’t passed at the point of a gun. It was legally passed legislation. It can be undone should the political forces align in the right way. Just keep in mind that for those who decide to not participate in the HC system and pay the modest fines, stuff happens to them too. And since we don’t let people die in the streets around here, someone will pay for their care…probbaly a bunch of taxpayers who, alas may feel their “liberty” crimped a bit…

re: “But if your goal is minimize the cost for the entire risk pool, then you probably favor the ACA. ”

As much as I favor ACA over anything else politically possible, I don’t think ACA does that. If, as you note, people with insurance tend to use more services and, as some studies seem to have indicated, we really don’t reduce costs over the entire population by shifting from treatment to prevention, then I don’t see how increasing the pool of insureds reduces the costs *over the entire pool* (population).

It strikes me that what ACA does is distribute the costs more evenly: from the elderly sick to the younger healthy and from those with catastrophic needs to those without them (or from those who will eventually have them to those who will not). And, of course, from those who can currently afford to pay to those who can’t currently afford to pay because they don’t have insurance when a catastrophe hits.

That is what it seems to me that ACA (at least as far as its insurance-related requirements) does and that strikes me as a perfectly worthy goal.

There are a couple of important things that you leave out of your analysis. First, as long as the funding mechanism is separated from the nature of the insurance coverage there will be no engine to motivate attmpts at cost reduction (e.g. cost-sharing, but also supply side constraints such as narrow provider networks, and restrictions on access to care). There will also be no engine to drive the efficient provision of appropriate care for the high cost cases that account for the bulk of medical spending. There is some of that in the ACA, but it is blunted by the restriction of the maximum share of income that out of pocket premiums should account for. Second, we are talking about a purchase that is very large and growing fast. 400% above poverty is about the 66th percentile of household income. When we subsidize such a potentially large part of the income distribution, we must in the end, tax many of the people we are subsidizing. As the magnitude of the income transfers required to sustain a system increase, it will be more and more difficult to finance the program while maintaining a functioning macro-economy. Not only the wealthy are hurt by this redistribution. One effect of the subsidies implied by the combination of poverty based programs is to effectively put low income people in a trap: they can’t increase their take-home pay without very large increases in income: implicit marginal tax rates on income for households near the poverty line is very large – in a few situations, greater than one! The ACA will add to the obligations of the public sector at a time when we are also going to need to convey massive transfers to baby-boom households as they retire. There is a childrens story called ‘The Mitten’ when a number of tiny animals try to squeeze into a mitten to get out of the cold. They can’t stand to turn anyone away, and eventually the mitten breaks. I hated that story because it seems to say that they should have turned people away in the cold. I think, though, that the system we have designed is in the process of treating the economy in the same way as the mitten. Here I must drop the analogy though, because there is another option. That is to let the market produce products that meet people’s needs most efficiently, and to let everyone choose the amount of money they want to spend on health care, not at the point where tgey are sick and need care, but at the point where they purchase coverage. Yes, we need large subsidies. The subsidies should be higher for those in poor health, to reflect the added actuarial cost of covering that person, and insurers should be allowed to price products based on risk. However, the subsidies should be flat, not linked to income, increasing over time only with inflation. This is tge engine that drives the change in the system. The incentives are there for the best possible coverage can be offered without eventually bringing the economy to a screeching halt.

Why not have first dollar coverage, but price the policy AS IF it was a high deductible plan?
That is exactly what our patented insurance product does.
By building paid-up coverage, one has the ability to increase his deductible, while, at the same time, having first dollar coverage.
By forgoing lower claims, he builds more underlying paid-up benefits.
For $300 a month, one can have $25,000 in paid-up benefits after 36 months (assuming no claims).
Even with first dollar coverage as an option, he still saves 60% off of a traditional premium.
Don Levit

It is ACA compliant, so one has full, comprehensive coverage.
We are still working with Milliman on tweaking the premiums, but we hope to charge lower premiums for those who are older than those who are younger.
The younger generally have the ability to build paid-up coverage more consisitently than the older.
Don Levit

Sheila:
Thanks for your very thoughtful comments.
Why do you think subsidies should be flat, and not linked to income.
How would that encourage the engine that drives change in the system?
When you say the funding mechanism is different from the nature of the insurance coverage, (1) what does that mean? and (2) how would you correct that “imbalance” to provide the engine to motivate attempts at cost reduction?
Don Levit

Another version of “I want the best care or coverage YOUR money will buy.” You speak of these choices as if the government and public policy wonks should have control over all American’s wealth, resources and incomes. Sorry, but, there needs to be some accountability here – personal and financial.

All you’ve confirmed is the (in)famous comment from Donald Berwick: “… Any health care funding plan that is just, equitable, civilized and humane must – must – redistribute wealth from the richer among us to the poorer and the less fortunate. Excellent healthcare is by definition re-distributional. …”

Simply, I was once that 28 year old, white male, you want to penalize – just starting out in corporate employee benefits. Today, 33+ years later, I’m still in there slugging to maximize the value employers and their employees receive from employee benefit plans – including health care.

For the first 25 years of my working career in employee benefits, spanning four employers, I paid more, much more in contributions than I secured in benefits (myself and my family members). We were healthy and what a blessing that was. I also paid more in out of pocket costs (back in the day when we did not have 1st dollar coverage) than I paid in contributions towards the cost of my employer-sponsored coverage.

However, in the last 8 years of my working career, spanning two employers, I have been fully funding my Health Savings Account. Had I had access to the HDHP/HSA combination all my working career, …

Just like Social Security, Medicare, Medicaid and other programs that rely on intergenerational transfers, as well as transfers from those who currently pay taxes to those who don’t currently pay taxes, a health care solution won’t resolve the challenge without some sort of a transition.

So, this is one of those times where I believe the right answer is a combination of a market solution, like the HDHP/HSA coupled with a social solution. The social solution comes from people like John Kerry, Edward Kennedy and Bill Frist – establishing a “stop loss” program for all Americans – perhaps with an attachment point of $25,000/year. Employers, exchanges, even some (not all) individuals can generally finance a baseline of coverage – where the maximum exposure per individual is capped at $25,000 a year. It is the open-ended changes mandated by PPACA (no pre-ex, insignificant individual mandate penalty taxes, elimination of annual and lifetime dollar limits) that poses the selection and total exposure risks neither individuals nor employers can afford. For individuals, that risk gets shifted to taxpayers through the exchanges. For employers, … well, no one can readily predict how they will respond – not so much for 2014, but let’s look back in 2020 and see whether we replicate or perhaps exascerbate the massive decline in employer-sponsored coverage for non-elderly Americans.

The “stop loss” would allow individuals and employers to limit their exposure and the potential for selection. The “stol loss” is a cost that should be socialized (again, all Americans, whether covered in exchanges, Medicare, Medicaid, employer-sponsored plans, or otherwise uninsured). By deploying that “stop loss” concept, the coverage would also become the attachment point where all of the proposed price controls, utilization controls, medical management, etc. would all apply (capping reimbursement rates, utilization, etc.) .

It is the nature of insurance that some will pay more in premiums than they will receive in benefits. After all, insurance is about spreading the risk and has been since the first marine policies were written to cover merchants whose goods had to cast overboard in rough weather so the ship (and remaining goods) could weather the storm).

That said, were health care like other goods, the rule of coverage would be that one insures only the risks one cannot afford to sustain one’s self and high deductible policies would make sense. But health care isn’t like a container of soft goods – unless you believe one has no more right to medical treatment than one has to new bedsheets. But it isn’t. Your local K-Mart isn’t obliged to provide you sheets and eat the costs because you have none. Your local hospital is obliged to provide urgent medical care.

And that is the crux of the problem from which all other issues flow.

Someone has to pay those costs and, if the patient can’t, that someone is either those who can (via higher costs for their services directly to the patients or to their insurers) or taxpayers in general (through government subsidies or universal medicare/medicaid). Once we chose the first route (insurance, since very few patients can afford to pay for major procedures out of pocket) and offer forms of insurance that make it less expensive for some folks must, perforce, make it more expensive for others.

Stop loss (or catastrophic) coverage doesn’t change that truism at all. It shifts the costs from th “lucky to be healthy” insured (like your family) to the “unlucky to be sick” families. As for employers not being able to afford low deductible policies, all the high deductible ones do is shift the costs from the employer to the unlucky among its employees.

Your idea of a separate catastrophoc pool is a very sound one.
Until the government decides to provide the stop-loss coverage, our pATENTED DESIGN DOES SO.
tHERE ARE 3 SEPARATE AND DISTINCT COVERAGES:
1. tHE PAID-UP BENEFITS RIDER, WHICH IS SHOWN TO ACCUMULATE TO $25,00-$50,000 OF BENEFITS OVER 36 TO 60 MONTHS, ASSUMING $300 A MONTH PAID FOR THE RIDER, AND NO CLAIMS.
2. GAP COVERAGE – FULLY COMMUNITY-RATED, FROM $1 TO $50,000.
3. CATASTROPHIC COVERAGE – FULLY COMMUNITY-RATED FROM $25,000-$50,000 ON UP.
DON LEVIT

Let there be no hedging here. The RAND HIE showed that if you make people pay more of their own money for care, they spend less. Overall health care spending can go down. This is known, and no one here disputes that. The subtlety is that it turned out that people in the study were somewhat lacking in their ability to discriminate between necessary and unnecessary care. Sick, poor people had a higher mortality.

So the goal should be to get the more capable people to pay directly and pay for the least capable people.

My idea is to base yearly deductibles on previous year’s income Government could provide insurance with low deductibles for the poor and very,very high deductibles for the middle class and rich. For example annual deductibles could be your last year’s adjusted income minus the poverty level. This would mean you could never have 2 really bad years in a row. This would nudge capable people to push prices down. It might encourage some to go outside the USA for treatment. And note that we expect poor people to live at the poverty level so in is not so bad that in a bad year a person net out at the poverty level.

BTW I think that it is better for us citizens to advocate for what we think are good options rather than to support something like PPACA which is very badly flawed even though we might judge it to be much better than nothing.

We who have some knowledge on certain issues, should always keep in mind that politics is a very dishonest business. Since it is very difficult for an honest person to be elected due to the rational ignorance problem, we should always despise our politicians and keep criticizing them.